From Transfer of Value to Transfer of Service as a Means to Financial Inclusion in Kenya

By Andrew Kulankash

Financial inclusion though not one of the Sustainable Development Goals is seen as a great enabler for about 8 of the 17 SDGs. Digital remittance channels are providing last mile solutions for migrants, enabling economic inclusion and financial resilience in host and home country.

When you mention ‘diaspora remittances’, the understanding is that of transfer of value from one country to another. Traditionally, transfer of funds from one jurisdiction to another was unregulated and untracked, commonly referred to as hawala. It was therefore almost impossible to measure the impact of such movements to an economy. In a bid to address this, the Kenyan government through Central Bank of Kenya published regulations that control and govern remittances, including collection of useful periodic data.

It is estimated that there are over 3 million Kenyan migrants, but the number could be higher as there is a big population of undocumented Kenyans leaving in the diaspora working in informal labor arrangements. Kenya has in the recent years consistently received circa $2.5 Billion (Kshs. 250 billion) in form of remittances, accounting for about 2.5% of the GDP. A big proportion of this comes in as a value in a bank account, a mobile money wallet or as physical cash from an outlet, limiting the benefits of such remittances to the excluded and underbanked. Remittances in Kenya is the highest foreign exchange earner surpassing foreign direct investments and official aid; this provides a clear insight of the impact the industry can have in promoting financial inclusion.

The standard channels for remittances into Kenya are bank accounts, mobile wallets or cash pickup locations (agents). The three channels provide a great opportunity for deepening inclusion, however the mere use of these wallets and bank accounts as means of receiving hard cash is not adequate to address the big topic of inclusivity of financial services. We need to encourage usage so that more services can be accessed from the remittance receipts.

Despite a global decline in remittances to due to the effects of COVID-19, there are very many players in this space, with new entrants every other day across the globe, and the incumbent players are continuously changing their strategies by adopting the power of digital solutions. The market is pretty flat, all players are offering similar corridors, rates, speed and channels; the differentiator will remain to be the extra service offered.

It’s time for the players in Kenya to start thinking beyond delivery of the funds as a value to the recipients’ accounts, and one of the easiest ways is incorporation of other services to their products. This will promote opportunities to access financial services and hence achievement of financial inclusion.

The actors should start creating a relationship with the migrants to understand their needs and incorporate the solutions to their remittance products. Some of the needs such as payment of health insurance for their loved ones living in the most remote parts of the country, payment of bills or mortgage instalments and redeemable vouchers for household expenditure should be easily addressed. There are many institutions that are technology ready offering plug in services for payment of bills or voucher redemption solutions for the different stores across the countries. The industry should foster strategic partnerships with institutions offering credit facilities to allow for instant settlement of repayments by migrants, this will go a long way to improve credit scores for such individuals to qualify for future credit facilities.

For the industry to achieve the above, the players must maintain the cost of the services low. One of the biggest impediments of remittances to developing countries is high fees, the World Bank estimates that the cost of remitting funds to Kenya is over 6%, which is significantly and comparably high, for the global drop in remittances due to COVID-19 to recover the transfer fees must come down. There is also need for conducive regulatory environment to foster the partnerships that help the industry deepen access and availability of financial services and products.